MAHEPC - MAHINDRA EPC IRRIGATION LIMITED Share Price

Management expressed an optimistic outlook for Mahindra EPC Irrigation Ltd., highlighting significant growth potential in the micro-irrigation industry driven by agriculture's importance in India's economy. They emphasized the need for improved water management due to increasing water stress, projecting an industry rebound after recent challenges.

Key forward-looking points include:

1. Projected Growth: The agriculture sector is expected to grow at 3.8% while the secondary and tertiary sectors may grow between 6.5% to 7.2%. Management believes a significant shift towards micro-irrigation is necessary to support these ambitious growth rates.

2. Subsidy Initiatives: The Indian government aims to cover an additional 10 million hectares with micro-irrigation over the next five years. This is a substantial increase from the 1.1 million hectares covered in FY'25.

3. State-Level Ambitions: Andhra Pradesh aims for 300,000 hectares/year over four years, showcasing high ambitions which may drive demand for micro-irrigation solutions.

4. Market Recovery: The industry showed a 4% growth in FY'25 with total income reaching Rs. 275.1 crore compared to Rs. 265.5 crore in FY'24. Management reported a significant improvement in profit before tax (PBT), achieving Rs. 10.71 crore in FY'25 from Rs. 2.43 crore in FY'24.

5. Sustainable Growth: Management outlined strategies to balance subsidy and non-subsidy revenues, achieving 33.4% contribution from non-subsidy business, compared to just 3% in FY'20.

6. Industry Anticipations: A stable raw material price environment and consecutive good monsoons can enhance agricultural productivity and increase demand for micro-irrigation.

By tapping into these opportunities, management aims for steady revenue growth, ultimately working towards the ambition of doubling turnover over the next few years.

Question 1: "Aditya Shah asked: Where are we losing the Rs. 11 crores in operating profit despite having a material cost advantage?"

Answer: "Good to talk to you again, Aditya. The Rs. 11 crores discrepancy comes from several factors. While raw material prices save about 2.6%, our higher share in irrigation projects, which have lower material costs but higher onsite expenses, played a crucial role. The onsite costs"”labor, installation"”are considerable. Additionally, our product mix also impacts profitability. Ultimately, the growth in project sales helps revenue but requires a different cost structure."

Question 2: "Aditya Shah followed up: What kind of operating profit margin can we target sustainably for the next few years?"

Answer: "We aim for operating margins around 6% to 8% in stable years, akin to F'15 to F'20 levels. While our goal is to improve margins as we stabilize, hitting that figure would be a successful milestone. The industry's fluctuations make precise predictions tough, but we're focused on building predictability into our margins."

Question 3: "Jigar Shroff asked: What initiatives are we taking to improve market penetration against competitors like Netafim?"

Answer: "To increase our market penetration, we utilize demonstrations on farms to showcase micro-irrigation benefits directly to farmers. We collaborate with Mahindra's dealer network to leverage their reach. Besides, we focus on product innovations like gravity feed systems to appeal to new customers and segments, enhancing our overall demand generation efforts."

Question 4: "Jigar Shroff also queried about the appointment of Ami Goda and her contributions."

Answer: "Ami Goda, our new Non-Independent Director and Head of Finance for Mahindra's Farm Equipment Sector, brings substantial expertise. Her experience includes a strong background in agriculture and mechanization, essential for aligning our strategic goals. Her appointment helps leverage synergies with our parent company, enhancing our operational effectiveness in the micro-irrigation business."

Question 5: "Jigar Shroff went on to ask if we expect our turnover to double in the next four years."

Answer: "While I can't provide specific forward forecasts, we are ambitious about growth. Doubling turnover is an excellent target, and we aim to exceed industry averages in growth. Our recent performance indicates positive trends, and while outcomes depend on market dynamics, we're committed to driving growth consistently and strategically."